Sudden rush to emerging debt funds highlights scarcity of bonds

LONDON, July 27 (Reuters) - Emerging market debt funds are
enjoying a bumper inflow for the first time in three years, but
portfolio managers are struggling to invest the bonanza as new
bond sales have declined and trading volumes have evaporated.

In a world awash with negative-yielding bonds - more than
$10 trillion of the global bond market at last count - and with
expectations of further monetary easing rife, there has been a
sudden scramble for emerging market debt.

Funds tracked by EPFR Global and JPMorgan have taken in a
net $20 billion so far in 2016. The data, which captures a small
slice of the global action, showed a record $4.7 billion in
inflows last week.

Most interest has centred on dollar-denominated debt,
generally seen as safer than bonds in domestic currencies. And
given that new hard currency bond sales have not recovered since
the latest emerging markets shakeout in February, a shortage has
emerged to drive up prices.

Emerging market companies will not sell more than $220
billion this year, JPMorgan estimates, contrasting that with the
2012-2014 period when annual corporate bond sales averaged $355
billion. Turmoil in Turkey after a failed coup may impact
markets further, with two issuers already postponing their bond
plans.

Sovereign debt sales are up this year thanks to mega-deals
from Argentina and Qatar. But net new supply, after accounting
for maturities and coupon payments, will be just over $50
billion, JPM says.

According Yerlan Syzdykov, head of emerging debt at Pioneer
Investments, one of the funds he runs is more than a third
larger than it was in early-2016.

"We are happy to have this problem but the difficulty is
things are progressively getting more expensive. When money
comes in, funds have to buy. Effectively you are a forced
buyer," Syzdykov said.
Continuación...